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Phillips v. Reckson Associates Realty Corp.

November 15, 2006

PAULINE PHILLIPS, ET AL., PLAINTIFFS,
v.
RECKSON ASSOCIATES REALTY CORP., SL GREEN REALTY CORP., MARATHON ASSET MANAGEMENT, LLC, NEW VENTURE MRE LLC, JASON BARNETT, SCOTT H. RECHLER, MICHAEL MATURO, DOUGLAS C ROCKER II, ELIZABETH MCCAULS, RONALD H. MENAKER, PETER QUICK, LEWIS S. RANIERI, JOHN F. RUFFLE, STANLEY STEINBERG, DEFENDANTS.



The opinion of the court was delivered by: Joseph F. Bianco, District Judge

MEMORANDUM AND ORDER

On November 8, 2006, defendants removed the above-entitled action from state court. Later that day, plaintiffs submitted a proposed Order to Show Cause seeking to remand the action to state court. On November 13, 2006, plaintiffs submitted papers in opposition to the proposed Order to Show Cause and a cross-motion to dismiss. For the reasons that follow, plaintiffs' motion to remand is granted, defendants' crossmotion is denied, and the case is hereby remanded to the Supreme Court of the State of New York, Nassau County.

I. BACKGROUND*fn1

Plaintiffs originally filed this action in New York State Supreme Court, Nassau County, attacking the proposed merger between defendants Reckson Associates Realty Corp. ("Reckson"), a real estate investment trust incorporated under Maryland law, and SL Green Realty Corp. ("SL Green").

On August 4, 2006, members of the same class of plaintiffs named in this action filed a separate action, entitled Lowinger v. Reckson Associates Realty Corp., Case No. 012524/06, in New York State Supreme Court, Nassau County. On October 24, 2006, state court Judge Stephen A. Bucaria issued an Order in the Lowinger action, finding that "New York has the paramount interest in determining whether Reckson's board of directors breached a fiduciary duty." See Lowinger, Case No. 012524/06, October 24, 2006 Order, at 9. Subsequently, defendants removed the Lowinger action to federal court, pursuant to the Securities Litigation Uniform Standards Act ("SLUSA"), 15 U.S.C. § 78bb(f)(2).

Several days after defendants removed the Lowinger action, plaintiffs filed an amended complaint in the instant action while it was pending in state court. (Defs.'s Aff. ¶ 9.) The amended complaints in the Lowinger action and the instant action were nearly identical - asserting the same claims on behalf of the same class of plaintiffs against the same defendants with respect to the same proposed merger - except that, in the instant action, plaintiffs alleged that their claims arose under "Maryland law." (See Pls.' Aff. ¶¶ 4-5; Defs.' Aff. ¶ 9.)

While the instant action was pending in state court, plaintiffs presented a proposed order to show cause to Judge Bucaria, who was presiding over both the Lowinger and the instant actions. Judge Bucaria signed and issued the order, requiring defendants to show cause on November 16, 2006, as to why a preliminary injunction should not be issued "on the basis . . . that plaintiffs have established . . . a likelihood of ultimate success on the merits based upon the applicable statutory or common law of the State of Maryland." Order To Show Cause, November 3, 2006, Supreme Court of the State of New York, County of Nassau (hereinafter, "November 3 Order").

Plaintiffs assert that the New York Supreme Court's November 3 Order establishes that Maryland law governs the instant action. Accordingly, plaintiffs contend, the state-law "carve-out" in SLUSA applies and this Court must remand the action to state court. Defendants argue that the November 3 Order did not constitute a determination that the instant action is governed by Maryland law. Rather, defendants contend, under New York law, an order to show cause should not be regarded as a finding by the court on the merits and does not preclude this Court from making an independent determination regarding the applicability of SLUSA's state-law "carveout" provision. Moreover, defendants assert that, in deciding which law governs the instant action, this Court (1) must disregard plaintiffs' self-identification of their claims as arising under Maryland law and, instead, (2) should be guided by the state court's finding in the Lowinger action that New York law governed a nearly identical case.

II. DISCUSSION

A. THE STANDARD FOR REMOVAL

"Generally, a defendant in an action pending in state court may remove that case to federal court only if it could have originally been commenced in federal court on either the basis of federal question jurisdiction or diversity jurisdiction." Citibank, N.A. v. Swiatkoski, 395 F. Supp. 2d 5, 8 (E.D.N.Y. 2005) (citing 28 U.S.C. § 1441(a)). "When a party challenges the removal of an action from state court, the burden falls on the removing party `to establish its right to a federal forum by competent proof.'" In re Methyl Tertiary Butyl Ether ("MTBE")Prods. Liab. Litig., No. 00-1898, MDL 1358 (SAS), M 21-88, 2006 WL 1004725, at *2 (S.D.N.Y. April 17, 2006) (quoting R.G. Barry Corp. v. Mushroom Makers, Inc., 612 F.2d 651, 655 (2d Cir. 1979) (quotation omitted)). Further, "out of respect for the independence of state courts, and in order to control the federal docket, federal courts construe the removal statute[, 28 U.S.C. § 1447,] narrowly, resolving any doubts against removability." Federal Ins. Company v. Tyco International Ltd., 422 F. Supp. 2d 357, 367 (S.D.N.Y. 2006); see Somlyo v. J. Lu-Rob Enter., Inc., 932 F.2d 1043, 1045-46 (2d Cir. 1991). In this case, defendants seek to establish federal jurisdiction by demonstrating that the case is subject to removal pursuant to SLUSA.

B. THE SECURITIES LITIGATION UNIFORM STANDARDS ACT

SLUSA effectively "directs the removal and dismissal of class actions brought under state law alleging misrepresentation in connection with the purchase or sale of a covered security." Araujo v. John Hancock Life Ins. Co., 206 F. Supp. 2d 377, 380 (E.D.N.Y. 2002). Four conditions must be satisfied to remove and to dismiss a case pursuant to SLUSA:

(1) [T]he underl[y]ing suit must be a "covered class action"; (2) the action must be based on state or local law; (3) the action must concern a "covered security"; and (4) the action must allege that defendants have misrepresented or omitted a material fact or employed a manipulative device or ...


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